Helping employers avoid the storm of legal issues in the workplace

The FCRA is the new FLSA

Recent multi-million dollar settlements highlight the importance for employers of complying with the Fair Credit Reporting Act (FCRA). They also highlight that, when it comes to class action lawsuits in the employment-law context, the FCRA is the new FLSA!

The FCRA has very specific requirements employers must comply with if they engage a background check service providers (referred to as “Consumer Reporting Agencies” (CRAs) in the FCRA) to compile background reports on applicants or employees. These types of reports include credit reports, criminal background reports, and other reports that have any bearing on someone’s moral character or reputation. We have discussed these requirements at length here and here, but, long story short, employers who run background checks on applicants or employees must do all four of the following:

Disclosure: Disclose to the applicant or employee that a consumer report, i.e., a background check is going to be compiled on the applicant or employee for employment purposes;

Authorization: Obtain authorization from the applicant or employee allowing the employer to have the report complied;

Pre-Adverse Notice: If the employer decides that it may take an adverse action against the applicant or employee in part because of any information that was disclosed in the background report, the employer must provide the applicant or employee notification of that fact and make other required disclosures; and

Adverse Notice: If the employer is going to take an adverse action against the applicant or employee in part because of any information that was disclosed in the background report, the employer must provide the applicant or notification of that decision and make other required disclosures.

Many employers run into problems because they fail to comply with one or more of these four distinct steps, but even employers who do manage comply with these four broad requirements tend to miss some of the more intricate, lesser-known requirements that each step further requires. Add a per-violation statutory penalty and an award of attorneys’ fees for each FCRA violation an employer commits and it becomes clear how FCRA class actions are quickly becoming the new go-to class action lawsuits for plaintiff-employment lawyers.

The proof is in the pudding. Take, for example, the recent preliminarily-approved $6.8 million class action settlement in Knights v. Publix Super Mkts., Inc., No. 3:14-cv-0072 (M.D. Tenn. 2014) – the largest FCRA class settlement of its kind to date. In Knights, the class members, which includes all job applicants who applied for positions with Publix from March 12, 2012 through May 13, 2014, claimed that the supermarket chain violated the FCRA by failing to provide them with “stand alone” disclosures before obtaining consumer reports that were used for employment purposes.

This “stand alone” requirement concerns the first two steps. While the “stand alone” requirement does not prevent an employer from combining the disclosure and the authorization requirements into one form (see 15 U.S.C.S. § 1681b(b)(2)(A)(ii)), it does prohibit the disclosure and authorization from being combined with other things, like an employment application. In fact, the FCRA provides that the disclosure must be made in writing in a document that consists “solely” of the disclosure. See 15 U.S.C. § 1681b(b)(2)(A)(i). This means an FCRA-compliant disclosure must not contain extraneous information.

So what is prohibited extraneous information? Well, the class plaintiffs in Knights claimed that Publix illegally included a liability release on its background check authorization forms that essentially sought to change the disclosure and authorization document into a waiver document where applicants would release their legal rights. Other courts have heard these types of cases and have concluded that waiver language in an FCRA disclosure form can violate the FCRA. See Reardon v. ClosetMaid Corp. (W.D. Pa. Dec. 2, 2013); Singleton v. Domino’s Pizza (D. Md. Jan. 25, 2012).

Under the terms of the proposed settlement, Publix will pay approximately $48 to each of 90,633 class members. About $2.27 million is set to be allocated to attorneys’ fees.

In another case, Dollar General and class plaintiffs have asked a Virginia federal court to approve a $4 million class settlement in response to class allegations that the retail company violated the FCRA by sending applicants outdated notices. As we discussed here employers have been required to provide updated forms to applicants and employees since January 1, 2013.

Other similar class suits are also making their way through the courts. Mack v. Panera, LLC and Mack v. American Multi-Cinema, Inc. (AMC) have been filed by a former employee of both companies. The plaintiff claims both companies forced potential employees to sign off on illegal background checks by requesting background checks in applications filled with language not related to the background check itself. Mack is seeking up to $1,000 in statutory damages for each class member, which consists of applicants and employees nationwide who filled out job applications with the companies within the past five years. Nine West Holdings Inc. was also recently hit with a putative class action that alleges the company conducts background checks on job applicants without proper disclosures.

Takeaways: The FCRA is not an easy statute to comply with. In addition, many states have their own background check laws that add additional requirements on employer hiring in their states. It is advisable that employers conducting background checks of any kind on applicants or employees consult with competent counsel before doing so and have counsel review their forms and their processes to ensure they are FCRA compliant in all respects – even if the background screening company assures them their forms are compliant.

Porter Wright Morris & Arthur LLP

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